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Galleria’S Boss Told: ‘Hand Over Royalties’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Galleria Cinemas' principal has been ordered to pay "all outstanding royalty fees" over a failed restaurant venture that a Supreme Court judge branded "an abject failure" and "a bust".

However, Justice Ian Winder dismissed all other claims brought against Chris Mortimer by the local master franchisee after the Bennigan's restaurant he operated at the Mall at Marathon closed for good in late 2012.

In particular, Justice Winder rejected Commonwealth Franchise Holdings' claim that the ex-Democratic National Alliance (DNA) leader had breached a "non-compete" clause in the Bennigan's franchise deal by opening an Outback Steakhouse restaurant at the same location just seven months later.

He found that enforcement of this clause would amount to "restraint of trade", especially since Commonwealth Franchise Holdings had no business interests to protect as no other Bennigan's restaurant had been opened anywhere in Nassau or the wider Bahamas.

And Justice Winder said it was "incredible" that Commonwealth Franchise Holdings altered its claim at the last minute to seek an injunction preventing Mr Mortimer from opening a rival restaurant until February 2023. He added that the non-complete clause only lasted for 12 months - a time limit that expired six years ago.

Mr Mortimer, in "unchallenged evidence", said he personally carried the loss-making Bennigan's restaurant from inception only because terminating so many employees could have damaged his political ambitions as then-DNA deputy leader.

Commonwealth Franchise Holdings, whose principal witness was Christopher Tsavousis, had initially sought to recover $213,889 "and other losses" from Mr Mortimer and his companies - including Galleria Cinemas - when it initiated legal action against him through a series of Supreme Court filings in 2013 and 2014.

Justice Winder's ruling, released on April 22, 2020, detailed how Commonwealth Franchise Holdings signed its master franchisee agreement with Bennigan's Franchising Company (BFC) on December 23, 2002.

Mr Mortimer's company, Casual Dining Restaurants (CDR), signed the franchise agreement to operate the Bennigan's at Mall at Marathon on November 8, 2006, with BFC. However, Commonwealth Franchise Holdings replaced BFC - and assumed all its rights under that agreement - in February 2008, the same month that the restaurant opened.

The deal required Casual Dining Restaurants' royalty payments, set at 4 percent of gross sales, to be split 50/50 between Commonwealth Franchise Holdings and BFC. The latter was to also receive 50 percent of the "advertising production fees" paid by Mr Mortimer's company, with a fee and interested to be charged if the latter's payments were late.

"Commonwealth Franchise Holdings (CFH) contends that since the commencement of the assignment agreement, CDR and Mortimer have both failed to fulfil their obligations under the said agreement,"Justice Winder said. "Further, CFH claims that CDR has never fulfilled its advertising production fees obligations. CFH contends that that in October 2008, CDR and Mortimer failed to pay royalty fees.

"Galleria, a company related to Mortimer, made two payments with respect to outstanding fees on October 1, 2009 ($7,520.55), and September 25, 2011 ($15,000). Commonwealth Franchise Holdings contends that, in breach of the contractual arrangements, CDR and Mortimer failed on three or more separate occasions to pay the royalty fees when due and upon demand."

Commonwealth Franchise Holdings alleged that Mr Mortimer and his CDR entity owed some $126,540 in outstanding royalty payments when it began legal action. Meanwhile, the Benngian's restaurant had already closed and ceased operating in November 2012.

The master franchisee claimed it was "advised that the closure was for renovations", while Mr Mortimer and CDR alleged it knew the restaurant had been "abandoned" on December 31, 2012, as "a result of CDR's continuing insolvency". They claimed this resulted at least partly from Commonwealth Franchise Holdings' failure to promote the restaurant properly via media advertising.

Some six to seven months later, an Outback Steakhouse restaurant was opened at the premises vacated by Bennigan's. That restaurant is owned by Island Bloom, a company whose shareholders are Mr Mortimer and his mother, Mary.

Commonwealth Franchise Holdings, which terminated the franchise agreement with Mr Mortimer and CDR in January 2013, alleged that the latter's sales between 2008 and 2012 ranged from $900,000 to $2.4m per annum. Based on prior royalty payments, it claimed it could have earned $250,000 over a five-year period had they not breached the franchise agreement.

"Further, they contend that as a result of Island Bloom’s breach of the non-compete clause by opening up a competing restaurant in the same location formerly occupied by Bennigan’s Restaurant, BFC and CFH have suffered damage to its reputation and further damage to its goodwill,"Justice Winder added.

"Commonwealth Franchise Holdings has thereby lost an opportunity to open an alternative location for Bennigan’s within the immediate three-mile radius since the Outback Steakhouse is a competing business."

The non-compete violation was denied by Mr Mortimer and his companies, and they denied that he "unconditionally" guaranteed CDR's obligations. They also argued that Commonwealth Franchise Holdings was not entitled to enforce the franchise agreement.

At trial, Justice Winder rejected Mr Mortimer and CDR's contention that Commonwealth Franchise Holdings was no longer the master franchisee because it had not complied with a contractual schedule to complete new Bennigan's restaurants in The Bahamas in 2010, 2012 and 2015.

While Mr Tsavousis "appeared in the witness box to have been surprised that his obligations.... extended to four, and not two, stores", the judge said there was no evidence that the master franchisee deal had been terminated.

The Galleria chief and CDR then argued that the latter's insolvency automatically terminated the franchise agreement. Their Bahamas-based accountant, James Owens, testified that CDR and the Bennigan's restaurant "never made a profit" was "insolvent from the end of its first month of operation".

However, he added that no 'going concern' warning was issued until the year ending March 31, 2019, as CDR had $1m in fixed deposits in its accounts. Commonwealth Franchise Holdings, though, argued that there was a distinction between the terms 'going concern warning' and 'insolvency', and that the claims made with respect to the latter were "entirely false'.

"They allege that that has been utilised in an attempt to skirt around CDR’s and Mortimer’s debts and obligations to CFH to claim that the franchise agreement automatically terminated," Justice Winder noted. "They say that even though CDR was purportedly insolvent, Mortimer admitted that rent, salaries and utilities were continually paid."

He found that the franchise agreement's termination could not be invoked because Commonwealth Franchise Holdings' had not been informed of the Bennigan's restaurant's insolvency.

As for the outstanding royalties, Justice Winder noted that Commonwealth Franchise Holdings had already been paid $303,759 over the life of the agreement - a sum confirmed by Mr Mortimer, who admitted monies were owed.

He found that the Galleria chief was liable to settle all royalties owed up until the franchise agreement's termination in January 2013, while rejecting Commonwealth Franchise Holdings' demand for $250,000 for loss of future earnings.

As for the non-compete clause, Justice Winder found there was "some merit" in Mr Mortimer's claim that this amounted to "restraint of trade" which was "void and unlawful" under common law.

This was despite Commonwealth Franchise Holdings alleging that Mr Mortimer had signed a Letter of Intent (LoI) with Outback Steakhouse in July-August 2012, and Mall at Marathon seeking to transfer the lease to it, several months before Bennigan's closed later that year.

However, the judge found that enforcement of the non-compete clause would be "unreasonable" because Commonwealth Franchise Holdings had suffered no harm, and had no business interests to protect, especially since no other Bennigan's restaurants had opened.

"The law is clear that covenants in restraint of trade are prima facie contrary to public policy and unenforceable," Justice Winder ruled. "The business of the Bennigan's Restaurant at the Mall of Marathon was an abject failure. It operated for years beyond the period it ought to have in an ordinary business setting. The store was a bust.

"The unchallenged evidence was that it made losses from inception and was carried by Mortimer only because it was in his personal interest to have done so. He was concerned that running as a candidate for political office would present bad optics have to lay off/terminate so many employees.

"In the result, Commonwealth Franchise Holdings likely obtained income for a considerable period (including the outstanding sums) when the restaurant ought to have long closed and none otherwise due to Commonwealth Franchise Holdings."

Justice Winder dismissed all claims against Galleria Cinemas and the Outback Steakhouse parent company, and instructed both sides to go away and settle the amount of royalty fees due from Mr Mortimer. Otherwise, he warned, the Supreme Court will calculate this for them.

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